Thursday, August 28, 2003

Time to scratch each other’s backs

Do you remember the ‘no-driving day’ in Venezuela? Somebody’s brilliant idea to ease congestion! Depending on your license plate number, there was one day a week when you couldn’t drive your car. Even if the idea had worked, I still would never have liked it because, as traffic kept growing, logic would lead us towards a blind alley as—inevitably—the next step would be two no-driving days, then three, all the way up to seven, when everything comes to a complete standstill. It’s rather like applauding the fact that a patient’s breathing problems have ceased—because the patient died. 

There’s a hint of all coming to a standstill in the theory about how globalization will optimize the world economy, by ensuring that merchandise will always be produced at the lowest marginal cost. What good does it do us to have products where the cost of the labor component gets smaller by the minute, if workers can’t buy the very products they produce?

What could be waiting for us at the end of that tunnel is a world of desperate wage earners, willing to work for pennies, who might never be able to afford even a reasonable part of the fruit of their efforts. Doesn’t it seem as if we’re getting nowhere?

This wouldn’t be as much of a problem if there were more jobs than workers, but unfortunately, that isn’t the case. Just ask the millions of professionals competing for jobs as taxi drivers in the world’s capital cities! Not even the United States has managed to escape unharmed from the pangs of globalization. In fact, over the past few months, for the first time, we have seen economic growth in the United States coupled with an increase in unemployment. As it turns out, over the past three years, the United States has “exported” 2.5 million jobs to low-wage countries like China.

I don’t have a solution. How can we increase profits, create jobs, increase wages, put an end to poverty, and make everybody happy? Nonetheless, sometimes I’ve toyed with the idea of a macro global fiscal reform aimed at creating jobs. The principle behind it would be that whoever requires the most services ends up creating the most jobs, and so should end up paying the least taxes. Under such a system, you’d pay double sales taxes on a frozen pizza you eat at home; standard sales tax on a pizza you order over the phone for home delivery, while a pizza eaten at a restaurant wouldn’t just be tax free; it would automatically be credited on your income-tax return. 

Friends, let’s give one another jobs, scratching each other’s backs—paying each other good salaries of course.

Thursday, July 17, 2003

Place us next to something profitable …

I recently visited a country here in the Americas where I flew over a valley that appeared very fertile—a vast, thick green carpet beautifully woven by plantations of African palm trees. I was enthusiastic, thinking that at last I had discovered development in action—that is, until I landed.

The contrast between the wonderful view from above and the misery below screamed out that the African palm, far from being a motor of development, could be the mother of all poverty traps. By contrast, take, for example, a coffee bean. It may be worth very little in the field, but at least it lets us dream of the chance of capturing a bit more of the value suggested by the fact that some people pay four dollars or more for a cup of it at Starbucks. But in the case of the African palm, no dreams seem possible. Just for a starter, its saturated fats are considered undesirable.

In this sense, the difficult cultivation of the African palm would seem to be doomed to mark the borderline of lowest overall marginal cost, that is, where the least is paid to farmers for their labor. Palm farming now has such a small margin of profit that it does not even cover the costs of registering a union, and so, Mr. Planner, just in case, don’t place us next to the palms, please place us next to something profitable.

When analyzing agricultural margins of profit, we must not forget that in most cases in which farmers’ margins allow them to maintain a decent standard of living, this is due to some kind of subsidy, protection, or market interference. So, of course, if we’re offered the chance to grow African palms in France, we might just consider it. 

It is one thing to be a marginal agricultural producer and it is another very different thing to be an agricultural margin capturer. In a supermarket in the United States I came across 11 kinds of eggs, ranging in price from 95 cents a dozen for caged, industrial production to $3.99 a dozen for eggs certified as coming from organically-fed free-range hens.

For countries whose hopes focus on Cancun and on agricultural opening, I hope that the above leads them to stop, think, and realize that opening in itself does not work miracles if farmers do not also receive other kinds of aid, such as those offered in many developed countries.

Friends, as I have said many times before, if we let globalization simply pursue the lowest marginal cost of labor, then Great Bad Deflation will inevitably come.

And as published in Voice and Noise of 2006

Thursday, July 03, 2003

The Clause

As of this date, the Bolivarian Republic of Venezuela agrees not increase its current level of public debt, nor to contract public debt with payment due in less than ten years. In the case of failure to comply with the above, all current public loans will be considered due and payable immediately. In order to guarantee that any future government does not employ subterfuge to evade the spirit of this Law, the Nation agrees to abide by international arbitrage.” …Just this simple clause, typical of the those applied in the private sector to control corporate debt levels, would enable, as if by magic:

An immediate and dramatic drop in the interest rates applied to the country, when international markets realize that the country, with its relatively modest debt, is determined to put an end to the distortion of short-term debt, the refinancing of which has been the eternal reason for charging high rates, while at the same time guaranteeing that the resulting relief in servicing the debt is not used as a pretext for increasing it. 

The end of the country risk financial rating, when after only a few days credit raters will have to classify Venezuelan public debt as worthy of investment.

Opening the economy to all kinds of private initiatives on the part of individuals, families, companies and cooperatives, since all would have access to new loans under reasonable conditions – something which to date has been blocked by our political leaders’ hunger for tax income and the consequent increase in debt.

Friends, I am sure the clause I propose would help put our country on the road to sustainable economic development but - I swear! - how difficult it is to convince our leaders of the past and present who blithely condemn old debt while at the same time extolling the virtues of new debt.

It sounds easy but... could it be done? Indeed it could! The hard part will be to free ourselves of loans traffickers and to ensure that our eternal paradigm changes actually change – even if only one little paradigm. 

Some may rightly say that the country would lose part of its independence. However, it would be well worth it if this would allow us to decree an abolition of public debt slavery, the same way we abolished slave labor long ago. 

Translated from El Universal, Caracas, July 3, 2003

Sunday, April 20, 2003

I was a very early anti-fragilist!

In April 2003 this is what I argued in a formal written statement delivered as an Executive Director of the World Bank:

"A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind. Who could really defend the value of diversity, if not The World Bank?"

Thursday, April 10, 2003

Out of the box tourism: Lessons from Florence


My apologies to the Florentines, but their beautiful city is like the Magic Kingdom of the Renaissance. The inexhaustible flow of tourists, hotels, prices, and lines for attractions, fast or slow meals, and souvenirs, all makes one question, between Medici and Disney, just who copied the model of whom. In my opinion, not only are the gelatos of Florence richer, but also, with the possible exception of Goofy, Michelangelo’s David and the frescos of Fra Angélico are far superior to Mickey, Pluto, and the rest. 

What an inheritance the Medicis left to their city! The Florentine economy will always be easy to manage, since the only thing that their Paperon de Paperoni (Scrooge McDuck) has to do is fix admissions prices. The one little cloud on the horizon could be the quantity of English, Venezuelan, German, and other immigrants who try to take advantage of the infrastructure. What would Machiavelli have thought about entering the European Union?

We know that despite all its possibilities, Venezuela, in a local saying, still has not managed to connect the foot to the ball when it comes to developing its tourism industry. This will never be resolved by naming ministers who spend their time conducting publicity campaigns, or visiting Orlando and Florence. We are not proposing that other Medicis substitute for those who govern us—we can discuss this on another day. But in the meantime, we could emulate the experts.

In Florence 500 years ago, the contest system was used to assure that the best artistic proposals were utilized to adorn the city. So let’s organize a grand contest.

It will be a grand contest to choose a grand team and a grand plan for the strategic development and management of the tourism sector for the next 30 years, with an estimate of costs and results.

A qualified panel of judges should choose the best three proposals, and the proposals should be publicly debated on television. The losers will receive an important prize, and the winners will be commissioned to execute their proposal during thirty years, with a significant fixed, indexed and guaranteed annual budget.

Since televised public contests enjoy high ratings, this contest could also be a way to build pontes novos, new bridges, in our divided society.

The Santa María del Fiore Cathedral took more than 100 years to construct, and for a long time everyone thought its dome would be impossible to build. And so, friends, let’s not lose the hope of finding a local genius like Brunelleschi for our Helicoide (a local 45-year-old monstrous white elephant). 

Extracted from "Voice and Noise" 2006